1. Bombs Away Video Games Corporation has forecasted the following monthly sales:   January $ 98,000     July $ 43,000     February 91,000     August 43,000     March 23,000     September 53,000     April 23,000     October 83,000     May 18,000     November 103,000     June 33,000     December 121,000   Total annual sales = $732,000 Bombs Away Video Games Corporation Production and inventory schedule in units Beginning inventory + Production – Sales = Ending inventory   January 23,000     February   March   April   May   June   July   August   September   October   November   December Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for $5 per unit and costs $2 per unit to produce. A level production policy is followed. Each month's production is equal to annual sales (in units) divided by 12. Of each month's sales, 40 percent are for cash and 60 percent are on account. All accounts receivable are collected in the month after the sale is made. a. Construct a monthly production and inventory schedule in units. Beginning inventory in January is 23,000 units. b. Prepare a monthly schedule of cash receipts. Sales in December before the planning year are $100,000. Bombs Away Video Games Corporation Cash Receipts Schedule January February March April May June   Sales $ $ $ $ $ $   Cash receipts:   Cash sales $ $ $ $ $ $   Prior month's credit sales   Total cash receipts $ $ $ $ $ $ Bombs Away Video Games Corporation Cash Receipts Schedule July August September October November December   Sales $ $ $ $ $ $   Cash receipts:   Cash sales $ $ $ $ $ $   Prior month's credit sales   Total cash receipts $ $ $ $ $ $ Prepare a cash payments schedule for January through December. The production costs of $2 per unit are paid for in the month in which they occur. Other cash payments, besides those for production costs, are $43,000 per month. Bombs Away Video Games Corporation Cash Payments Schedule Constant production January February March April May June   Production cost $ $ $ $ $ $   Other cash payments   Total cash payments $ $ $ $ $ $ Bombs Away Video Games Corporation Cash Payments Schedule Constant production July August September October November December   Production cost $ $ $ $ $ $   Other cash payments   Total cash payments $ $ $ $ $ $ 2. Guardian Inc. is trying to develop an asset-financing plan. The firm has $400,000 in temporary current assets and $300,000 in permanent current assets. Guardian also has $500,000 in fixed assets. Assume a tax rate of 25 percent. (Do not ...

1. 1.
Bombs Away Video Games Corporation has forecasted the
following monthly sales:
January
$
98,000
July
$
43,000
February
91,000
August
43,000
March
23,000
September
53,000
April
23,000
October
83,000
May
18,000
November
103,000

2. June
33,000
December
121,000
Total annual sales = $732,000
Bombs Away Video Games Corporation
Production and inventory schedule in units
Beginning
inventory
+
Production
–
Sales
=
Ending
inventory
January
23,000
February
March

3. April
May
June
July

4. August
September
October
November
December

5. Bombs Away Video Games sells the popular Strafe and Capture
video game. It sells for $5 per unit and costs $2 per unit to
produce. A level production policy is followed. Each month's
production is equal to annual sales (in units) divided by 12.
Of each month's sales, 40 percent are for cash and 60 percent
are on account. All accounts receivable are collected in the
month after the sale is made.
a.
Construct a monthly production and inventory schedule in units.
Beginning inventory in January is 23,000 units.
b.
Prepare a monthly schedule of cash receipts. Sales in December
before the planning year are $100,000.
Bombs Away Video Games Corporation
Cash Receipts Schedule
January
February
March

6. April
May
June
Sales
$
$
$
$
$
$
Cash receipts:

7. Cash sales
$
$
$
$
$
$
Prior month's credit sales

8. Total cash receipts
$
$
$
$
$
$

9. Bombs Away Video Games Corporation
Cash Receipts Schedule
July
August
September
October
November
December
Sales
$
$
$
$
$
$

10. Cash receipts:
Cash sales
$
$
$
$

11. $
$
Prior month's credit sales
Total cash receipts
$
$
$
$

12. $
$
Prepare a cash payments schedule for January through
December. The production costs of $2 per unit are paid for in
the month in which they occur. Other cash payments, besides
those for production costs, are $43,000 per month.
Bombs Away Video Games Corporation
Cash Payments Schedule
Constant production
January
February

13. March
April
May
June
Production cost
$
$
$
$
$
$
Other cash payments

14. Total cash payments
$
$
$
$
$
$
Bombs Away Video Games Corporation
Cash Payments Schedule
Constant production
July
August
September
October

15. November
December
Production cost
$
$
$
$
$
$
Other cash payments

16. Total cash payments
$
$
$
$
$
$
2.

17. Guardian Inc. is trying to develop an asset-financing plan. The
firm has $400,000 in temporary current assets and $300,000 in
permanent current assets. Guardian also has $500,000 in fixed
assets. Assume a tax rate of 25 percent. (Do not round
intermediate calculations. Round your answers to the nearest
whole number.)
Construct two alternative financing plans for Guardian. One of
the plans should be conservative, with 60 percent of assets
financed by long-term sources, and the other should be
aggressive, with only 56.25 percent of assets financed by long-
term sources. The current interest rate is 13 percent on long-
term funds and 8 percent on short-term financing. Compute the
annual interest payments under each plan.
Annual Interest
Conservative
$
Aggressive
$
Given that Guardian’s earnings before interest and taxes are
$280,000, calculate earnings after taxes for each of your
alternatives.
Earnings
After Taxes
Conservative
$
Aggressive
$
What would the annual interest and earnings after taxes for the
conservative and aggressive strategies be if the short-term and

18. long-term interest rates were reversed?
Conservative
Aggressive
Total interest
$
$
Earnings after taxes
$
$
3.
Biochemical Corp. requires $740,000 in financing over the next
three years. The firm can borrow the funds for three years at
12.60 percent interest per year. The CEO decides to do a
forecast and predicts that if she utilizes short-term financing
instead, she will pay 9.25 percent interest in the first year,
13.50 percent interest in the second year, and 10.50 percent
interest in the third year. Assume interest is paid in full at the
end of each year.
Determine the total interest cost under each plan.
Interest Cost
Long-term fixed-rate
$
Short-term variable-rate
$
Which plan is less costly?
Long-term fixed-rate plan
Short-term variable-rate plan

19. 4.
Carmen’s Beauty Salon has estimated monthly financing
requirements for the next six months as follows:
January
$
8,100
April
$
8,100
February
2,100
May
9,100
March
3,100
June
4,100
Short-term financing will be utilized for the next six months.
Projected annual interest rates are:
January
5
%

20. April
12
%
February
6
May
12
March
9
June
12
What long-term interest rate would represent a break-even point
between using short-term financing and long-term financing?
(Round the monthly interest rate to 2 decimal places when
expressed as a percent (e.g., .67%) and use this rounded rate to
compute the monthly interest. Round the monthly interest to
the nearest whole cent. Use the rounded monthly interest
amounts to compute the total interest for the 6-month period.
Input your answer as a percent rounded to 2 decimal places.)
Interest rate
%
5.
Assume that Hogan Surgical Instruments Co. has $2,700,000 in
assets. If it goes with a low-liquidity plan for the assets, it can
earn a return of 15 percent, but with a high-liquidity plan, the
return will be 11 percent. If the firm goes with a short-term
financing plan, the financing costs on the $2,700,000 will be 7
percent, and with a long-term financing plan, the financing

21. costs on the $2,700,000 will be 9 percent.
Compute the anticipated return after financing costs with the
most aggressive asset-financing mix.
Anticipated return
$
Compute the anticipated return after financing costs with the
most conservative asset-financing mix.
Anticipated return
$
Compute the anticipated return after financing costs with the
two moderate approaches to the asset-financing mix
Anticipated Return
Low liquidity
$
High liquidity
$